28 November 2011

Attached is a very important essay analyzing the political aspects of the current crisis with Pakistan, written from the point of view of leftist Pakistani intellectual. For those readers who are unfamiliar with the author, Tariq Ali graduated from Oxford, where he studied philosophy, politics, and economics, and was President of the Oxford Union. He is now based in London, writes widely, has published many books, and is a frequent contributor the London Review of Books, The Guardian, and Counterpunch. While he writes from the perspective of the left, he is a well-recognized authority on the history, politics, and culture of Pakistan, and has been particularly critical of the ubiquitous corruption in its military and civilian government. He has many sources inside the Pakistani government, military, and even the ISI. In other words, Ali's views are both learned and important, and should be studied by anyone interested in this part of the world, regardless of his/her political orientation. The editors of Counterpunch have graciously given me permission to post his essay, and I urge you to read carefully this very important essay.

The Nato assault on a Pakistani checkpoint close to the Afghan border which killed 24 soldiers on Saturday must have been deliberate. Nato commanders have long been supplied with maps marking these checkpoints by the Pakistani military. They knew that the target was a military outpost. [CS note: I don think one should dismiss the possibility of a screw up, but even if was a screw up or some kind of false flag operation, it does not change essence of Ali's argument.] The explanation that they were fired on first rings false and has been ferociously denied by Islamabad. Previous such attacks were pronounced ‘accidental’ and apologies were given and accepted. This time it seems more serious. It has come too soon after other ‘breaches of sovereignty’, in the words of the local press, but Pakistani sovereignty is a fiction. The military high command and the country’s political leaders willingly surrendered their sovereignty many decades ago. That it is now being violated openly and brutally is the real cause for concern.

In retaliation, Pakistan has halted Nato convoys to Afghanistan (49 per cent of which go through the country) and asked the US to vacate the Shamsi base that they built to launch drones against targets in both Afghanistan and Pakistan with the permission of the country’s rulers. Islamabad was allowed a legal fig-leaf: in official documents the base was officially leased by the UAE – whose ‘sovereignty’ is even more flexible than Pakistan’s.

Motives for the attack remain a mystery but its impact is not. It will create further divisions within the military, further weaken the venal Zardari regime, strengthen religious militants and make the US even more hated than it already is in Pakistan.

So why do it? Was it intended as a provocation? Is Obama seriously thinking of unleashing a civil war in an already battered country? Some commentators in Islamabad are arguing this but it’s unlikely that Nato troops will occupy Pakistan. Such an irrational turn would be difficult to justify in terms of any imperial interests. Perhaps it was simply a tit-for-tat to punish the Pakistani military for dispatching the Haqqani network to bomb the US embassy and Nato HQ in Kabul’s ‘Green Zone’ a few months back.

The Nato attack comes on the heels of another crisis. One of Zardari and his late wife’s trusted bagmen in Washington, Husain Haqqani, whose links to the US intelligence agencies since the 1970s made him a useful intermediary and whom Zardari appointed as Pakistan’s ambassador to Washington, has been forced to resign. Haqqani, often referred to as the US ambassador to Pakistan, appears to have been caught red-handed: he allegedly asked Mansoor Ijaz, a multi-millionaire close to the US defense establishment, to carry a message to Admiral Mike Mullen pleading for help against the Pakistani military and offering in return to disband the Haqqani network and the ISI and carry out all US instructions.

Mullen denied that he had received any message. A military underling contradicted him. Mullen changed his story and said a message had been received and ignored. When the ISI discovered this ‘act of treachery’, Haqqani, instead of saying that he was acting under orders from Zardari, denied the entire story. Unfortunately for him, the ISI boss, General Pasha, had met up with Ijaz and been given the Blackberry with the messages and instructions. Haqqani had no option but to resign. Demands for his trial and hanging (the two often go together when the military is involved) are proliferating. Zardari is standing by his man. The military wants his head. And now Nato has entered the fray. This story is not yet over.

27 November 2011

... How the Military - Industrial - Congressional Complex (MICC) Will Win By Losing

My previous posting, discussed some of the implications of our looming grand-strategic defeat in Afghanistan. Here, we address the narrower logistics question of how to bring our forces home.

The old adage that it is easy to get into Afghanistan but painful to leave is true for many reasons -- a big one is described in the 27 November issue of the Daily Mirror [see attachment 1 below] -- the British army plans to use Russian railways, built by the Tsars 140 years ago, to return hundreds of millions of pounds worth of equipment in Afghanistan via a landroute to the English Channel.

If you think the horror described in the Daily Mirror report is bad, think about the US options: Given our deteriorating relations with Pakistan, the long, highly vulnerable land route out of Afghanistan, thru the Bolan and Khyber passes, and then down the road system of the Indus Valley in Pakistan to the teeming and potentially violent port of Karachi, is becoming increasingly problematic.

An alternative exit strategy for redeploying the far larger US forces would be an agonizing variation of the Dunkirk option described in the Daily Mirror report plus a sea lift, perhaps via transshipment points in Black Sea ports, like Batumi in Georgia, or Novorossiysk or Sochi in southern Russia, or even Odessa in the Ukraine (which at least would avoid the intermediate transshipment problem posed by the different railroad gauges between Poland and Germany).

A more remote option would be to repair relations with the mullahs of Iran and exit overland, westward thru transshipment ports in that country; but that unlikely option would require, at a minimum, we kiss and make up with the Iranians, lift sanctions, and tell our so-called allies, the Israelis, to shut up and stop threatening to bomb Iran.

By process of elimination, therefore, the fourth and most likely exit option is the time-honored US strategy of leaving mounds of expensive equipment behind when it flies away from a war. Moreover, from the perspective of the MICC, this option has the added added advantage of increasing the demand for larger budgets in the future, because it would make it easier to sell a "reset" program to replace the losses with newer, even more-expensive, more-complex, logistics-intensive weapons and equipment that are ill-suited for neutralizing the likely threats of the 21st Century.

So, as the Aussies say, 'no worries, mate,' because 'tomorrow is another day,' and besides, the MICC is likely to win by losing, after Afghanistan is gone with the wind.

------------------------

Attachment 1:

The 'new Dunkirk' - British forces to use Tsars' railway to travel 3,500 miles home by train from Afghanistan

After a decade of war, they face the awesome task of shifting a colossal mass of hardware more than 3,500 miles across Europe to bases in Germany and the UK by the time British troops pull out in 2014.The tally of goods used in the war against the Taliban since 2001 includes armoured vehicles, trucks, aircraft, helicopters, artillery, mortars, temporary buildings and medical centres.

British military commanders are planning to use Russian railways, built by the Tsars 140 years ago, to bring home hundreds of millions of pounds worth of equipment from Afghanistan.

To prepare for one of the biggest logistics exercises they have ever undertaken, Army, Navy and RAF chiefs have been visiting former Soviet states bordering Afghanistan to draw up a masterplan for what has been dubbed the ‘new Dunkirk’.

The idea being discussed with military and political figures in the Russian states envisages using the world’s most powerful cargo locomotives to pull up to 170 wagons along railway lines first used by the Tsars and later by Stalin. ... continued

25 November 2011

It is becoming increasingly clear that the AF-PAK war will end in yet another grand strategic defeat for the United States. To date, President Obama, has been able to distract attention from this issue, but given the stakes in 2012, that dodge is unlikely to last. Get ready for an ugly debate over “who lost the Afghan War.”

O’Hanlon and Wolfowitz posit the bizarre thesis that the admittedly less than successful outcome against the FARC guerrillas in Columbia is a favorable model for justifying continuing business as usual in Afghanistan. Viewed through the refractions of their Columbian lens, O’Hanlon and Wolfowitz conclude, “Our current exit strategy of reducing American troops to 68,000 by the end of next summer and transferring full security responsibility to Afghan forces by 2014 is working. In a war where the U.S. has demonstrated remarkable strategic patience, we need to stay patient and resolute.”

Are O’Hanlon and Wolfowitz living on the same planet as Cordesman or do they live in some kind of parallel universe?

I submit it is latter. Here’s why -

Einstein showed how reasoning by analogy can be a very creative way of thinking, but it is also very dangerous, because bad analogies, if not rigorously tested against reality, can capture the imagination and cause one to see what one wants to see. This problem has been particularly evident in the case of understanding the highly evolved complex tribal cultures of Afghanistan, as Jonathan Steele shows in his just released book, Ghosts of Afghanistan: The Haunted Battleground (Counterpoint, Berkeley, October 2011). Steele explains how one of the enduring features of America’s 30 year adventure in Afghanistan is a policy-making decision cycle, [ i.e., what military reformers refer to as the collective Observation - Orientation - Decision Action (OODA) Loop], grounded in an outlook [i.e., Orientation] that is shaped by false assumptions and mythical beliefs. The distorted Orientation causes decision makers and policy wonks to filter information in a way that causes them see what they want to see. When this happens, as I explained here, decisions and actions become progressively disconnected from reality and decision-makers become overloaded by confusion and disorder — a process we in the Pentagon used to call incestuous amplification.

The only innoculation against incestuous amplification is to destroy the “model” shaping the orientation with a blunt dose of cold reality, like the Cordesman Report — yet as O’Hanlon and Wolfowitz have so convincingly demonstrated, the minds of some people are beyond saving. A problem, of course, is that more people will read silly fantasies peddled in the Wall Street Journal than heavy tomes produced by serious analysts.

Cordesman’s report is also important for another reason. Notwithstanding the last ditch fantasies of O’Hanlon and Wolfowitz, an atmosphere of gloom is descending on Versailles, and the inevitable hunt for scapegoats to blame for the looming failure is in the offing. While Cordesman is unlikely to be a part of any finger pointing game, analyses like his (and others like Steele’s) will add fuel to the fire heating up the emerging political debate over “who lost Iraq and AFPAK?” We can expect that debate to go from the bizarre (like the O’Hanlon/Wolfowitz thesis) to the really ugly, given the unscrupulous know-nothing scorched-earth atmosphere currently so much in evidence in our contemporary politics.

Polls suggest withdrawals from Iraq and Afghanistan are more in tune with the majority wishes of the American public, which after ten years of costly futile war is understandably tired and is turning inward because of economic troubles at home. Yet polls also suggest the military is now the most “respected” institution of government–far more so than it was in the early 1970s; this is true despite (1) the fact that DoD is now the only federal agency that cannot pass at least part of the annual audit required explicitly by the Chief Financial Officers Act of 1990 and implicitly by the Constitution and (2) that after ten years, its wars are sputtering aimlessly into an morass.

On the other hand, the military — really the Military-Industrial-Congressional Complex or MICC — is also far more politicized and influential in domestic politics than it was in the 1970s; its PR machine, abetted by ubiquitous advertisements by defense contractors in the printed and electronic media, is also far more sophisticated today than it was 40 years ago, and militarism has insinuated itself far more deeply into our popular culture. Indeed, as I have written elsewhere, Eisenhower’s nightmare is upon us.

To wit: the recent debate over deficit reduction effectively took serious reductions in defense spending off the table. In fact, even though the Super Committee on deficit reduction just collapsed as many predicted it would, Pentagon officials have refused to even make contingency plans to cope with defense cutbacks caused by a sequester, and have decided instead to push back on Congress, in effect passing the pain onto social programs and Social Security and Medicare. Evidence is mounting that defense spending and “no tax increases” are now eclipsing Social Security and Medicare as third rails in American politics.

My advice, dear reader, is to get ready for another Vietnam-like “stab in the back” argument like that of the late 1970s when the generals blamed their strategic/grand-strategic defeat in Vietnam on politicians at home. That drumbeat in the 1970s, abetted by phony claims that budget cuts after Vietnam created a “hollow military,” when in fact the hollowness was a self-inflicted wound [1]⁠1, together with fantastical promises that new technologies would revolutionize the nature of war, plus the spreading of contracts to more and more congressional districts, fueled a political atmosphere that unleashed the huge and wasteful spending spree of the 1980s.

This time, a re-run of the stab-in-the-back argument is also likely to be abetted by an unstated racist undertone of being ‘stabbed by a black socialist president,’ (a totally phony charge) fueled discretely behind the scenes by the MICC. This kind of inuendo will very likely to gain traction, particularly among the Limbaugh/Beck crowd on the hard right, but more generally among angry blue collar white men who have seen their standard of living stagnate or decline and their social status diminish.

Obama and the Democrats will be targeted for the bulk of blame, although in the case of Afghanistan and Pakistan, Obama certainly bears a major part of the responsibility for Afghanistan, given his reckless decision to escalate the ground and air war in 2009. But the problems cited in Cordesman’s report did not build up in just three years, and its information helps us understand why blaming Obama and Democrats for ‘snatching defeat from the jaws of victory’ is a phony charge — there is plenty of blame to go around. Nevertheless, it is a almost certain this charge will be a campaign plank of the Republicans in 2012.

Combine the likely intensification of the MICC’s ‘stab-in-the-back politics with the growing popular rage against austerity economics in the US and Europe, the increasing prospect of a double dip global recession or even a debt-driven deflation, and 2012 is shaping up to be a very dangerous year for the United States — particularly if Israel tries to take advantage of this mess by attacking Iran in the middle of an election year.

1 As I explained in my 1980 report, Defense Facts of Life (see Part I of Defense Facts of Life: The Plans/Reality Mismatch, Westview Press 1985) the so-called “hollow military” was a self inflicted wound caused by explicit internal decisions to cutback on readiness inorder to pay for modernization with increasingly costly and complex weapons. My report proved this point by showing how the Air Force’s tactical fighter force suffered from the same readiness problems as the rest of the military, even though the budget for the tactical fighter mission area increased dramatically in inflation adjusted terms after 1975.

14 November 2011

On 11 November, my friend Andrew Feinstein authored an op-ed in the New York Times entitled Arms and the Corrupt Man. Andrew gave the reader a tantalizing glimpse of the dynamite packed into his important new book, The Shadow World: Inside the Global Arms Trade. His is a sordid story of corruption, money, and the impulse toward perpetual war that is engendered by the global arms trade across the global spectrum from the white through the grey and into the black markets.

By way of introduction, Andrew was a member of the African National Congress when, under the leadership of Nelson Mandella, the South African government made one of most profound transformations in human history. But after becoming a member of the new South African parliament, Andrew discovered that some things never really change. Although he rose swiftly in influence, his disillusionment grew as he sought unsuccessfully to investigate the corruption surrounding a huge arms deal. Isolated from his former comrades, Feinstein was forced to choose between the party he had so admired and his principles. He had come to the fork in the road made famous by the American strategist Colonel John Boyd, where the choice became “To Be” or “To Do.”

To Andrew's credit, he chose the latter and wrote After the Party: A Personal and Political Journey Inside the ANC, a best-selling memoir of his time as an African National Congress Member of Parliament in South Africa. A brief introduction to that important book can be found in a TV interview he did for BBC Hard Talk. Andrew has recently been an Open Society Institute International Fellow and is the founding co-director of Corruption Watch, an anti-corruption NGO, and chairperson of the Aids charity FOTAC. Andrew's latest book, The Shadow World: Inside the Global Arms Trade, expands his earlier work on corruption in the South African arms trade to a truly global scale. A video summary by Andrew can be seen here.

[Truth in advertising: I was a minor source for Andrew in his research for “The Shadow World.]

08 November 2011

The Military - Industrial - Congressional Complex (MICC) is in panic city over what promises to be cosmetic cutbacks in the growth of the defense budget. The courtiers in Versailles on the Potomac, like the obedient editors of the Washington Post, are dutifully pumping out baloney about how dangerous it will be to cut the defense budget. The fact that the Pentagon cannot even account for all the money it receives is unimportant; after all, cutbacks in social security and medicare will pony up enough money to keep the MICC's party going, while the so-called deficit hawks impose austerity economics on the people (in the name of reducing federal debt -- think of this as 'not letting them eat cake') so the Federal Reserve can continue propping up the toxic private debt of the insolvent financial sector. And besides the Post needs the advertisement money from Boeing, Lockheed-Martin, and Northrup-Grumman.

My good buddy Mike Lofgren, who just retired with his sanity intact after working on Capital Hill as a Republican staffer for 28 years -- no small achievement I might add -- does not think much of the whining in the Georgetown salons. Here's why (see his Counterpunch essay below):

Chuck Spinney

BTW ... The war between the MICC and Social Security and Medicare that is now being joined has very little to do with the so-called War on Terror -- In fact, it is occurring right on schedule, if you doubt this, read the Op-Ed I wrote on this subject, in Sept 2000, one year before 9-11.

Over the last five years, we’ve spent money on the military – in real, inflation adjusted dollars – at a higher rate than at any other time since World War II. That includes the late 1960s, when the United States simultaneously faced a competitor with 10,000 nuclear weapons and sent a half million troops to Vietnam. The Pentagon is spending recklessly at a time of fiscal crisis when America’s debt has been downgraded for the first time since formal credit ratings began in 1917.

Yet the Washington Post has joined the hucksters of the military-industrial complex in forecasting imminent doom if one cent is cut from Pentagon budgets. Supposedly, the Defense Department has already cut $465 billion from its budget, and further cuts would be ruinous. But those $465 billion in cuts are fake, mostly paper “savings” pocketed by the president from adjustments to unrealistic past projections of the cost of the wars in Iraq and Afghanistan and from other baseline manipulations.

Despite what Secretaries Gates and Panetta have claimed, the DOD budget has been, next to the Bush tax cuts, the single greatest contributor to the drastic swing from surplus to deficit since 2001. Including debt service costs, the wars have cost about $1.7 trillion. Additionally, the Pentagon has spent about $1 trillion above inflation on its non-war budget. Adding debt service makes that about $1.3 trillion, for a grand total of roughly $3 trillion added to the debt, courtesy of DOD.

As for the military’s doom-saying, such rhetoric has been standard procedure for service chiefs testifying to Congress for at least the past three decades that I served as a congressional staff member. Deliberate threat inflation, such as the hyperbolic overestimation of Soviet military capabilities in the 1980s, was the genesis of serious intelligence failures and billions wasted on weapons designed for imaginary threats.

China-as-military-threat is now in vogue at the Pentagon and in Congress. There is a threat, but it comes not from the rust-bucket aircraft carrier China bought from Russia. China now owns about one trillion dollars in U.S. Treasury securities – 36 per cent of all foreign holdings. According to the IMF, China is poised to pass the U.S. in gross domestic product by 2016. That is the real threat we face, not death rays and stealth air fleets. If you want to gaze upon the threat China poses, not because of any inherent evil on its part, but because of our own tax policy, spending priorities, “free” trade ideology, and general indifference of our elites, go to Youngstown, or Toledo, or some other post-industrial wasteland.

The U.S. spends about as much on its military as all other countries in the world combined. It could shave a trillion off a projected $6.1 trillion in spending over the next decade and still be miles ahead of the next power or any conceivable combination of powers.

But what about another 9/11, ask the Cassandras? In 2001, the U.S. already spent as much on its military as everyone else in the world, but that was irrelevant to preventing 9/11. That disaster was an intelligence failure: a failure of our intelligence agencies to some degree, but even more a failure of the cognitive intelligence and good judgment of our elected so-called leaders.

The Post cites figures from biased DOD-funded sources (think tanks, trade associations, contractors) claiming that a million jobs would be lost. But national defense is not supposed to be a jobs program, and in any case, if creating publicly-funded employment were the objective, a dollar spent on infrastructure would produce more jobs than a dollar spent on the military.

The United States is now a bloated military empire on the cusp of economic decline. Historically, the danger in such cases is that when the fiscal stability of the empire begins to weaken, the governing elites double down on the very policies of military profligacy that caused the fiscal crisis in the first place.

History is littered with powers that followed this ruinous path: the Spanish Empire, the Dutch Republic, the British Empire, and the Soviet Union. Chest-pounding rhetoric to the contrary, our military policies of the last decade have left us less prosperous, less secure, and less free. A course correction is desperately needed, regardless of what entrenched Beltway elites like the editorial board of The Washington Post think.

MIKE LOFGREN retired in June 2011 after 28 years as a Congressional staffer. He served 16 years as a professional staff member on the Republican staff of the House and Senate Budget Committees.

06 November 2011

Twenty-first century economics and questions of wealth are about money: where it comes from and were it goes. One thing the financial meltdown and the ensuing economic crisis have made indisputably clear is that the market adjudicating these questions is not free, dispassionate, or rational, but is shaped by clashes of interests, passion (greed and fear), manipulation of information on a gigantic scale (e.g., hidden agendas, influence peddling, deception, ambiguity, all aided and abetted with computers creating what one Pentagon wag called the post-information era), and lawless behaviour — that is to say, the 21st Century political economy is game that operates with a very big “P” and a little “e.” Yet neoliberal and Keynesian economics are premised on the same fallacious dogma that the 21st Century market economy is a natural phenomenon with a little “p” and a big “E.”

So, despite the undeniable political essence of the factors creating the current economic crisis, the debate over how to resolve the crisis does not question the “p-E” vs. “P-e” distinction. Instead, it has been framed as an intellectual contest between neoliberal economics and Keynesian economics. The dogmatic constraint shaping this contest is taking on the odor of a mediaeval religious dispute where highly educated protagonists are arguing scholastically about the number of faeries on the head of pin. The dominance of austerity economics in the US and EU may indicate the ideas of neoliberalism are winning the debate, but is the only alternative a restoration of Keynesianism? Or is it time to address the P-E distinction itself? Perhaps it is time for an emergence of a Galileo to introduce the inconvenience of reality into a sterile debate that has become disconnected from reality.

This Blaster presents a penetrating analysis of these questions. The author, Professor Ismael Hossein-zadeh, an Iranian-born Kurd, has been a professor of political economy at Drake University since he received his PhD at the New School for Social Research in New York City in 1988. Hossein-zadeh gets at the deeper questions by debunking two central myths propping up the illusions implicit in the economic theory of Keynesianism and the proposition that economic experts can fine tune the economic through the application of theory and dispassionate reason.

Since this P-E distinction is very much Professor’s Hossein-zadeh’s subject, let’s see what he has to say about the question of whether a Keynesian Retoration will save us.

The Keynesian view that the government can fine tune the economy through “appropriate” fiscal and monetary policies to maintain continuous growth at or near full employment is based on the idea that capitalism can be controlled by the state and managed by professional economists from government departments, that is, capitalism run by “experts” in the interest of all. Economic policy making according to this view is largely a matter of technical expertise or economic know-how, that is, a matter of choice.

The effectiveness of the Keynesian model is, therefore, based largely on a hope, or illusion; since in reality the power or control relation between the state and the market/capitalism is usually the other way around. Economic policy making is more than simply an administrative or technical matter of choice; more importantly, it is a deeply socio-political matter that is organically intertwined with the class nature of the state and the policy making apparatus.

The Keynesian illusion has been nurtured or masked by two major myths. The first myth stems from the perception that attributes the implementation of the New Deal and Social Democratic economic reforms that followed the Great Depression and WW II to the genius of Keynes. This is a myth because those reforms were more a product of the fierce class struggle and overwhelming pressure from the grassroots than that of the brains of experts like Keynes. The harrowing socio-economic turbulence of the 1930s generated momentous social upheavals and extensive working class struggles. The ensuing “threat of revolution,” as FDR put it, and the “menacing” pressure from below prompted reform from above—independent of Keynes.

As a relatively well-known academic/economist, however, Keynes provided the theoretical or intellectual rationale for the badly-needed reforms in order to save capitalism by fending off revolution. The auspicious coincidence of the publication of his famous book, The General Theory of Employment, Interest and Money (1936), with the implementation of the New Deal-type economic reforms in the US and Western Europe provided Keynes with much more credit for those reforms and the subsequent economic recovery than he deserved.

The second myth is based on the view that attributes the long economic expansion of the 1948-1968 period in the US and Europe to the efficacy or success of Keynesian policies of economic management. While it is certainly true that expansionary government policies of the time played a big role in the fantastic economic developments of that period, other factors contributed even more to the success of that expansion. These included the need to invest and rebuild the devastated post-war economies around the world, the need to supply the vast post-war global demand for consumer as well as capital goods, lack of competition for US products and capital in global markets—in short, the fact that there was enormous room for growth and expansion in the immediate post-war period.

Harboring these myths and illusions, many Keynesian economists envisioned a silver-lining in the 2008 financial meltdown and the ensuing economic crisis. For, in the “crisis of Neoliberal economics,” they saw an opportunity for a new dawn of Keynesian economics, or the coming of a second New Deal. Well-known Keynesians such as Paul Krugman, Joseph Stiglitz and Dean Baker wrote (and continue to write) passionately on the need to revive Keynesian policies, to implement extensive stimulus packages, to reinstate the Glass Steagall Act and other regulatory measures that were put in place in response to the Great Depression. The excitement on the part of many Keynesians about the prospects of what they perceived as an almost automatic switching of policy gears from Neoliberal to Keynesian economics led George Melloan of the Wall Street Journal to write (sarcastically) “We’re all Keynesian’s Again.”

More than three years later, it is abundantly clear that Keynesian policy prescriptions are falling on deaf ears, as Neoliberalism continues to keep Keynesianism at bay. Indeed, even the nominally socialist and Social-Democratic economies of Europe have adopted the unbridled austerity policies of Neoliberalism.

Shunned, Keynesian hopes and illusions have turned into disappointment and anger. For example, using his New York Times’ column, Professor Paul Krugman frequently lashes out at the Obama administration for ignoring the Keynesian policies of economic expansion and job creation and, instead, following policies that are not very different from those of Neoliberal Republicans. “The truth is that creating jobs in a depressed economy is something government could and should be doing. . . . Think about it: Where are the big public works projects? Where are the armies of government workers? There are actually half a million fewer government employees now than there were when Mr. Obama took office.”

Let me repeat the essential part of Professor Krugman’s statement: “The truth is that creating jobs in a depressed economy is something government could and should be doing.” This is exactly what I call Keynesian illusion: the belief in the ability of government to control and/or manage capitalism; the perception that government “could and should” invest in job creation but, somehow, does not do it now. Yes, a government could and should invest in job creation; but that would be a different government, a disinterested government independent of special interests, not the Obama administration (or the US government more broadly) that is beholden to the big money for its election/reelection. It is true that a capitalist government may occasionally invest in economic growth and job creation; but those would be occasions when such policies are perceived to be also serving the interests of the ruling class (as in the aftermath of the Great Depression and WWII).

It is obvious that the Keynesians’ disgust with the Neoliberal policies of the government of big business is misplaced. At the heart of their frustration is the unrealistic perception that economic strategies and policies are largely intellectual products, and that policy making is primarily a matter of technical expertise and personal preferences: economists and/or policy makers who are far-sighted, good-hearted, or better equipped with “smart” ideas would opt for “good” or Keynesian-type capitalism; while those lacking such admirable qualities would foolishly or misguidedly or heartlessly choose “bad” or “Neoliberal capitalism” [1].

As I have pointed out in an earlier critique of Keynesian economics, it is not a matter of “bad” vs. “good” policy; it is a matter of class policy. Keynesians are angry because they tend to be oblivious or shy away from the politics of class, that is, the politics of policy making. Instead, they seem to think that economic policy making results mainly from a battle of ideas and theories, and they are disappointed because they are losing that battle.

Professor Krugman passionately writes, “Where are the big public works projects? Where are the armies of government workers?” What he fails to mention is that those “armies of government workers” were put to work not courtesy of FDR, or because of Keynes’ brilliant ideas (in fact, when the FDR administration initially embarked on the implementation of the extensive public works projects it did not even know Keynes was alive), but because much larger armies of workers and other grassroots threatened the capitalist system by persistently marching in the streets and demanding jobs. It is interesting that many Keynesian economists admirably fight (of course, in the realm of ideas) for the rights of workers but shy away from calling on them to rise up to demand their rights.

It is not enough to have a good heart or a compassionate soul; it is equally important not to lose sight of how public policy is made under capitalism. It is not enough to repeatedly bash Ronald Reagan as a wicked king and praise FDR as a wise king. The more important task is to explain why the ruling class ousted the wise king and ushered in the wicked one. Government policy makers are certainly not stupid. Why, then, did they switch from the policies of Keynes and New Deal economics to those of Reagan and Neoliberal economics?

The US capitalist class pursued the Keynesian-type policies in the immediate post-war period as long as political forces and economic conditions, both nationally and internationally, rendered those policies effective. Top among those conditions, as mentioned earlier, were nearly unlimited demand for US manufactures, both at home and abroad, and the lack of competition for both US capital and labor, which allowed US workers to demand decent wages and benefits while at the same time enjoying higher rate of employment.

By the late 1960s and early 1970s, however, both US capital and labor were no longer unrivaled in global markets. Furthermore, during the long cycle of the immediate post-war expansion US manufacturers had invested so much in fixed capital, or capacity building, that by the late 1960s their profit rates had begun to decline as the capital-labor ratio of their operations had become too high. In other words, the enormous amounts of the so-called “sunk costs,” mainly in the form of fixed capital, or plant and equipment, had significantly eroded their profit rates [2].

More than anything else, it was these important changes in the actual conditions of production and the realignment of global markets that precipitated the gradual abandoning of Keynesian economics. Contrary to the repeated claims of the liberal/Keynesian partisans, it was not Ronald Reagan’s ideas or schemes that lay behind the plans of dismantling the New Deal reforms (in fact, steps to hammer away at those reforms had been taken long before Reagan arrived in the White House). Rather, it was the globalization, first, of capital and, then, of labor that rendered Keynesian or New Deal-type economic policies no longer attractive to capitalist profitability, and brought forth Ronald Reagan and Neoliberal austerity economics [3].

Karl Marx argued long ago that dreams of an egalitarian socialist society to supplant capitalism could not be realized unless (a) conscious political actions are taken toward that end (i.e., there is not such a thing as automatic collapse of capitalism), and (b) such actions are carried out on a global level. In light of the relentless Neoliberal austerity race to the bottom that globalization has unleashed in recent years and decades, it is obvious that Marx’s provisos for meaningful social change applies not only to radical socialist ideals but also to reformist capitalist programs a la Keynes.

References.

[1] Many progressive/Keynesian economists call the protracted crisis that started in 2008 the crisis of “Neoliberal capitalism,” not of capitalism per se—see, for example, David M. Kotz, “The Financial and Economic Crisis of 2008: A Systemic Crisis of Neoliberal Capitalism,” Review of Radical Political Economics, Vol. 41, No. 3 (2009), pp. 305-317.

[2] For a relatively thorough discussion of this issue see Anwar Shaikh’s “The Falling Rate of Profit and the Economic Crisis in the U.S.”; in The Imperiled Economy, Book I, Union for Radical Political Economy, Robert Cherry, et al. (1987).

[3] For an informative analysis of this transition see Harry Shutt’s The Trouble with Capitalism: An Enquiry into the Causes of Global Economic Failure, Zed Books (1998).